The S&P 500 is not exactly an easy index to beat. But the Credit Suisse US Equity Good Governance Index more than succeeds . This indicator of the Swiss entity, which invests in US companies that score well in corporate governance, has appreciated by 30.4% annualized since its launch, at the beginning of December 2019.
In the same period, the S&P 500 scored 18 , 9% annualized. The responsible indicator also fell less during the Covid crash , yielding 28.2%, compared to 34% that the traditional one sank. See more news about environmental, social and governance criteria in the Economist Sustainable Investment and ESG.
In recent years, large companies have paid dearly on the stock market for their lack of attention to the G of ESG (an acronym that refers to environmental, social and corporate governance issues), points out Silvia García Castaño, general director of investments and products of Tressis.
“Hugely notorious bankruptcy scenarios have had to do with accounting errors , or with employees who have not acted as they should. That is why the Ghas a direct impact on the risk premium applied to an investment, “he adds. In the case of Tressis, this governance analysis looks at issues such as business ethics, whether there is a specific sustainability strategy or an appropriate one. transparency policy, in addition to the corporate governance structure itself.
Traditionally, in the evaluation of the G , metrics such as the number of independent persons or women on the board have been taken into account, although the range of aspects analyzed is expanding. This is explained by Juan Lladó, CEO of Gesconsult, which has just launched the Gesconsult Good Governance RV USA fund, which systematically selects the 100 companies with the best corporate governance in the S&P 500. To do this, it applies a model that analyzes the language used by companies in their annual reports.
“This model confirms that well-governed companies tend to outperform the index and its peers,” explains Lladó. This own methodology uses a dictionary of 8,000 terms (including long-term, colleagues, commitment or dismissal) on the basis of which it values the good governance of these 500 companies.
From iz. right and from top to bottom: G. Uriol (Ibercaja); SG Chestnut (Tressis); S. Míguez (Alternative Ratings); V. Alvargonzález (Nextep); J. Mercader (Finanbest); J. Lladó (Gesconsult) and S. Velasco (Fidelity).
“ESG is not necessarily good for profitability, it can even be negative; rather it has to do with the moral filter of each person. But good governance does affect profitability, since it allows to eliminate governance failures from portfolios that , in turn, they can lead to serious legal or image problems and greatly affect the price, “says Víctor Alvargonzález, of Nextep Finance.
“We can rule out investments even if they are sustainable in the ‘E’ and ‘S’ if they are not in the ‘G'”, explains Guillermo Uriol (Ibercaja Gestión)
In the words of Sebastián Velasco, general director of Fidelity for Spain and Portugal, it is necessary “to educate entities about the benefits of adopting strict and transparent accounting practices, having inclusive and diverse management teams and having incentive plans and remunerations that bring the objectives of the company into line with those of its board; otherwise, these companies will lower their listing on the stock market or even disappear, “he warns.
For his part, Guillermo Uriol, investment manager at Ibercaja Gestión, explains that “when you analyze an investment in fixed income, the important thing is that the bonds are repaid, and for that it is essential to look at governance”. “In our sustainable fixed income funds we look for the E or the S , but the G ends up ruling,” he says. “As much as an investment is apparently sustainable in terms of environmental and social issues, we can discard it if it does not seem so to us in governance,” he highlights.
Governance criteria are still totally unknown to ordinary investors, warns Jordi Mercader, CEO of Inbestme
For his part, Jordi Mercader, CEO of Inbestme, a roboadvisor that offers ESG portfolios, highlights that, despite its relevance, the G is a great unknown for the ordinary investor. “Through a survey carried out among our clients, we have perceived that what they understand as sustainable is rather what is technically known as impact investment,” he explains.
Sergio Míguez, founding partner of Alternative Ratings – a firm dedicated to the independent analysis of private funds – emphasizes that corporate governance “is an absolutely basic issue in any investment, and even more so in illiquid funds, because you marry that manager for a long time. and those companies. “